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Motability Operations was investigated by the National Audit Office. Credit: PA

A company which supplies cars to people with disabilities has been accused of overcharging customers by £390 million over the past 10 years.

People who receive mobility welfare payments can arrange for their money to be transferred to Motability Operations in return for a leased car, along with insurance, maintenance and roadside assistance.

But public spending watchdog the National Audit Office (NAO) said Motability’s own forecasts on the future value of used cars have been out of line with the market average, resulting in customers being charged £390m “more than was required” to cover lease costs since 2008.

The chief executive of taxpayer-supported Motability Operations, Mike Betts, has now resigned after the NAO inquiry found he was in line for a bonus worth £1.86m in September - likely to reach around £2.2m by 2022.

The Work and Pensions and Treasury Committees have previously labelled his £1.7m salary "totally unacceptable".

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Motability is made up of the operations business and two charities, accounting for about 10 per cent of all new cars bought in the UK.

The NAO found that remuneration for executive directors has been “generous” and linked to performance targets set at levels “easily exceeded” since 2008.

As a result, in the first seven years of a bonus scheme, five executive directors received £15.3m in total.

As of March 31, the business also held £2.62 billion in reserves; and benefits from certain tax concessions which, in 2017, were worth up to £888m.

The Work and Pensions and Treasury Committees said potential rival companies cannot compete with Motability because of the substantial tax breaks it gets from the government which no other firm is entitled to, meaning it does not face any competitive pressure when tendering for the contract to run the scheme.

£2.62bn

held in reserves by Motability Operations on March 31

£15.3m

in bonuses paid out to five executive directors in seven years

£888m

received in tax breaks from the government

The watchdog found there had been a "limited effort" to understand why only 36 per cent (614,000) of eligible customers use the scheme - though commended the firm for achieving a 99 per cent satisfaction rate.

It also said the company's lease rates were 44 per cent lower than the market rate.

Motability accounts for about 10% of all new cars bought in the UK. Credit: PA

Sir Amyas Morse, head of the NAO, said there is “much to be proud of” at Motability, but said stakeholders including the government must give “far-reaching consideration to the scheme” - in particular, whether its “governance and accountability arrangements are robust enough”.

A Department for Work and Pensions spokeswoman said the NAO report “strengthens our concerns regarding Motability Operations’ financial model” and insisted the department is committed to working with the charity to achieve “improved outcomes for disabled people”.

Lord Sterling, who co-founded the scheme, said in a statement that he accepts the watchdog’s recommendations but insisted there are “areas still open to further debate”.

The finding that customers are being overcharged “runs quite contrary” to prices which are lower than the market rate, he said.

“Every penny surplus to sustainability and to this excellent price and service goes to help enhance the lives of the scheme’s disabled customers and their families,” he added.

A Motability Operations spokesman said Mr Betts will resign “following the implementation of actions agreed as an outcome of the NAO review”.

This will be “no later than May 2020”.

Responding to the report, the Motability charity said it will “seek improved mechanisms to better influence Motability Operations’ executive remuneration”‘.